Mike Kueber's Blog

January 1, 2013

Thoughts on avoiding the fiscal cliff

Filed under: Issues,Politics — Mike Kueber @ 2:55 pm

The so-called fiscal cliff was considered to be extremely dangerous to the fragile American economy because it sharply increased taxes and modestly decreased spending.  For a nation that was ostensibly concerned about its burgeoning debt, you might think that increased taxes and decreased spending were things that both parties could agree on.  But that would be wrong.  Just like what happened last year, the only acceptable political compromise results in a smoke & mirrors solution that simply kicks the can down the road.

According to an article in the NY Times, the following comprise the fiscal-cliff solution:

  • Taxes. The income capital-gains tax rate will increase for those making $400k/$450k, deductions/exemptions will phase out for those making $200k/$250k, and the estate tax rate will increase from 35% to 40% for estates over $5M/$10M.  This is the only part of the solution that makes sense because it is a reasonable compromise between Democrats who want to make the tax more progressive and Republicans who believe America is taxed enough already.  Too bad the pols didn’t call it a day and go home after reaching this compromise.
  • Spending.  Extended unemployment benefits were extended, while Medicare cuts, sequestration, and the debt ceiling were deferred.  Without this unemployment-benefit extension, which costs over $30 billion a year, the 26-week limit to benefits would have replaced the current limit that goes up to 99 weeks.  Although this spending has been described as a great stimulus, the time for stimulus spending has passed and the people who have been collecting for more than 26 weeks need to stop holding out for a job that no longer exists.  The Medicare cuts and sequestration are examples of future spending cuts that are included in earlier bills, but when the time comes for implementing the cuts, the gutless congressmen refuse to take their medicine.  And finally, although President Obama attempted to get the debt ceiling increased during these negotiations, that matter will need to be addressed in late February or early March. 

Several Republicans bragged that there was actually a coherent strategy behind their actions – i.e., by getting taxes off the table now, they will have more leverage to insist on spending cuts during the debt-ceiling negotiations in a couple of months.  Too bad that President Obama has not agreed to those operating principles.  In fact, he recently declared that any future spending cuts must be matched by an equivalent amount of tax increases.

Déjà vu, anyone?  

I still remember all of those Republican presidential candidates boast that if Congress gave them $9 of spending cuts in return for $1 of tax increases, they would just say “no.”  At least, now the Dems have shown their colors – they want higher taxes and bigger government – and that is a losing argument in this country.


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